Calidad de Vida: Effective communication and efficient decision-making - Essay Example

?Calidad de Vida Introduction Effective communication and efficient decision-making are, in many situations, the basis for effective and successful functioning of an organization. It is especially true in relation to strategic decisions that are related to the future of the company. Such strategic choices are usually made by the board team, and determine the goals and future course of organizational development. Therefore, in order for the strategic decisions to be well-though and effective, the board team, as Kenkel (2011) outlines, should work cooperatively in order to be an effective and adequate decision-making body. Strategic decisions are the few decisions a board should make to outline the long-term goals and objectives of the organization. At the same time, it should be remembered that strategic decisions do not actually specify the plan of actions, but rather outline the course of business development. Specific actions to achieve those goals will, then, be based on the initial strategic decisions taken by the board (Kenkel 2011). It should also be remembered that such important decisions should be taken only after the board analyzes and discusses all the implications of the situation. First of all, the board team is to analyze all of the possible scenarios and determine which one is the most favorable for the organization. This can be determined on the basis of company’s long-term goals and objectives. In addition, such decisions should take into account what is best for the organization as a whole, not just for its separate members. Therefore, the goal of this paper is to analyze what kind of strategic decisions and development plans are more appropriate for organizations. In particular, the case of Calidad de Vida, a private healthcare organization, will be analyzed to determine how the company should behave in a particular situation. Suggestions and recommendations will be drawn upon the analysis and discussion of the situation. The Case of Calidad de Vida: Situation Calidad de Vida is a privately owned healthcare organization founded by Gloria Londono, a former occupational therapist. The woman created her company as an alternative to traditional nursing homes. At Calidad de Vida seniors with disabilities are to have an opportunity to be rehabilitated through individually tailored procedures and activities. Treatment programs at Gloria’s centers are developed individually for each patient, and in cooperation with families and relatives of the clients. Along with the main facility Calidad de Vida works with a number of franchises. All of the clinics use the same approach to treating the clients: proprietary methodology, similar therapy-management computer applications, and strict performance protocols, the goal of which is to ensure that all of the franchises follow common high-quality approaches and procedures for treating the seniors. Nevertheless, since the franchises are not owned by Gloria directly, it is often difficult to ensure that all of them adhere to the high standards set by Calidad de Vida. The parent organization, while is helping the franchises to organize their operations, is benefiting only from entry fees and payments for help with recruitment and training. Percentage-of-sales royalties make 5% of franchise’s income and take time to accrue. On the other hand, the market for such services is growing – the number of seniors in the country is continuously increasing. However, as the owner of the company observes, it is rather difficult to control the numerous franchises so that they strictly follow the methods, procedures and philosophy of Calidad de Vida. The whole business, Gloria suggests, can survive and succeed only if all of the franchises stand for high-quality innovative care (Herzlinger and Munoz-Seca 2011). In general, it can be said that the business model of Calidad de Vida is subfranchising, meaning that among the goals of the company is to establish many units fast. This is to bring the organization good local presence and profit on the basis of other people’s resources (Lowell 2006). Such multiple-unit franchising gives the company an advantage of rapid growth and development, use of other people’s capital, and “potential for rapid cash flow from sale of multiple-unit franchise rights” (Lowell 2006, 6). On the negative side, however, is the fact that control over franchises is relatively weak and large portions of revenue go to the franchise owner, not to the parent organization. In addition, it is vitally important that both the franchise and the franchiser have common philosophy since this not only ensures that all the facilities follow common standards, but also ensures effective capitalization and money in the long run (Pickwell 2011). The Task for Calidad de Vida So, though Calidad de Vida is a relatively successful and healthy organization, the owner is concerned about the fact that corporate standards are not followed by all of the franchises. Furthermore, since the franchises are relatively independent units, it is somewhat difficult to keep continuous and close control over their operations. The owner, Gloria Londono, happens to receive an offer that might totally change the situation: 3 million euros of investment in exchange for a 25% stake, a board seat, a vote on all strategic decisions, and the ability to liquidate the position in 5 years through a public offering or a sale (Herzlinger and Munoz-Seca 2011, 122). Victor Serna, a potential investor is waiting for Gloria’s decision. So, the owner, together with board that consists mostly of friends and family members who invested into Calidad de Vida together with Gloria, has to decide what to do. The two options are as follows, together with the advantages and disadvantages of both types of decisions: Accept the investment Refuse to accept the investment Advantages: Ability to pursue aggressive growth strategy Ability to open 10 wholly owned by Calidad de Vida centers Increased direct profit received from wholly owned centers Publicity for the company’s holistic approach to patient care Advice from Victor Serna, who is a good businessman, regarding company’s operations Advantages: Ability to run the business independently, relying on own judgment Keeping own stake Ability to follow the principle the business followed before Disadvantages: Gloria’s stake would fall from 64% to 51% Victor Serna would have more involvement in the business than any one of the other investors and board members Meddling of Victor Serna into business operations Disadvantages: Lower growth and profit rates While the board members are eager and willing to receive the investment, Gloria has doubts regarding whether the company will be able to follow its operations rules and values after Victor joins the business. On this matter Smith et all (1988) write that no matter what kind of a decision the company has to take, it should be rational and comprehensive. The extent to which the decision taken is rational is, according to Cyert and March (1963), related to how successful the organization is at the moment. In particular, as the researchers suggest, rationality of strategic decisions is dependent on organizational performance, meaning that better performance leads to weaker decisions since the decision-makers’ attention to external circumstances and internal processes is weakened. Good performance, according to Papadakis (1998), is “negatively related to rational decision-making” (Papadakis 1998, 116). Therefore, it might be the case of Gloria that she simply does not wish to be more rational in relation to business development because the company is operating well and relatively effectively, in her opinion. Furthermore, among her concerns is the potential reduction in own stake. However, stake’s fall form 64% to 51% still leaves her the major owner and decision-maker. Actions to be Performed by Calidad de Vida In the given situation the very first thing Calidad de Vida should do is an in-depth analysis of its current performance and comparison with the potential performance after the investment. For this purpose Bowman and Moscowitz (2001) propose real options analysis as a tool for understanding which strategic investment decision will be more beneficial for the company. The researchers present the case of Merck & Co., Inc. who used real options analysis to take an effective strategic decision. In case of Merck & Co. the company calculated the value of the option using “Black-Scholes model (Black and Scholes 1973), which requires values for five parameters” (Bowman and Moscowitz 2001, 773). These parameters were stock price, exercise price, time to expiration, volatility and risk-free interest rate. The stock price option is current value of cash flows generated by the potential investment. In case of Calidad de Vida this would be potential income generated by 10 new and wholly owned clinics. The exercise price for Merck & Co. the was the cost of building a new plant and other associated start-up costs. For Calidad de Vida this would be the cost of opening new clinics. It should also be remembered that if the company accepts the investment, it is sure to open the new clinics. If Calidad de Vida refuses to cooperate with the investor, all of their growth and development activities will have to be sponsored and supported by the company itself. Furthermore, refusal to accept the money will lead to the company’s inability to open new clinics. Time to expiration in case of Merck & Co. meant the time it would take the company to achieve the results. In case of Calidad de Vida this will be the time the company needs to get the new clinics up and running. Volatility is based on standard deviation of returns for the stocks. Finally, “risk-free interest rate is based on the then-prevailing yield on two- to four-year Treasury bonds” (Bowman and Moscowitz 2001, 774). As a result, Merck & Co.’s analysis showed that value of the option exceeded its cost, so the company agreed to take a decision in favor of the investment. In case of Calidad de Vida it is obvious that accepting the investment has much more advantages than refusing to do so. Furthermore, since the company does not have the resources, including financial ones, to open new clinics independently, it makes sense, as Zouari (2008) suggests, to use the external financing. Otherwise Calidad de Vida will simply lose an opportunity to develop a profitable project (Zouari 2008). Potential Results In the given situation, as Gloria Londono thinks, the company has only two choices: to accept the proposal of Gloria Londono, or to refuse to cooperate. In case Gloria accepts the offer, Calidad de Vida will, within a year, open 10 new clinics and, as a result, increase its profits. At the same time, the company may continue opening franchises and, in such a way, receive some additional income from entry fees, from helping the franchises with recruitment and training, as well as from percentage-of-sales royalties which are 5%. So, in this case the company will be receiving income from 11 own clinics and 11 existing plus 6 potential franchises. In addition, together with the board, Gloria will have total control over the owned by Calidad de Vida 11 clinics. This will give her an opportunity to ensure that at least owned by Calidad de Vida clinics are totally and strictly compliant with the standards and values of the organization. On the other hand, Gloria Londono may choose to keep her stake and continue with the franchising business. In this case the company will be growing and developing slower, as well as bringing lower profits. On this matter Chabaud, d'Hautefort and Saussier (2011) suggest that in case company-owned clinics are not efficient enough, they are likely to respond to change imposed by the owner faster than the franchised clinics, thus improving their performance faster. Furthermore, “franchised units may represent a drawback when the franchisor wants to implement a new strategy and may explain why plural forms (i.e. franchise mix) appear to be efficient organizational choices” (Chabaud, d'Hautefort, and Saussier 2011, 1). This suggestion of the researchers it totally supported by the experience of Calidad de Vida - Gloria Londono observes that the franchises do not follow the corporate principles and values. So, having wholly owned clinics would help Gloria to make the work of all units more consistent and standardized. However, though Londono is thinking about two options only – either accept or refuse the investment – she never considered negotiations. During her meeting with Victor Serna, when he gave her the draft of the contract, she did not say anything regarding the conditions of the potential contract. She did not manage to discuss with Victor any details, nor talked with him about the business at all. At the same time, while Serna seems to be a serious but harsh individual, it shouldn’t be forgotten how interested he is in Gloria’s business. His investment is large, but the gains are potentially large as well. So, it might be worth for Gloria to negotiate the conditions with Victor and, at least try to offer him a lower share of the stake. In this case she wouldn’t lose so much and still receive an opportunity to grow and control the business. Conclusions and Recommendations On the basis of the information presented above it can be concluded that the major concern of the owner and founder of Calidad de Vida is the potential loss of 13% of the stake. For this reason (self-interest) Gloria Londono is having biases regarding the proposal of Victor Serna. This self-interest and narrow view on the situation may lead to company’s losing a potential investor and, as a result, an opportunity to grow and develop more rapidly. Furthermore, Gloria seems to have a negative opinion about Victor – she believes he will oppose her plans and objectives in relation to the business. While the other board members acknowledge that Serna is a good businessman and will be able to work with the company effectively, Gloria cannot believe he will be supporting the major values of the company: honesty, enthusiasm, transparency and a search for the common good. This negative percept of the individual may lead to Gloria’s refusal to accept the investment. At the same time, it is obvious that, at least financially, the investment would be very beneficial for the company. Therefore, it might be recommended that Gloria communicates with Serna on business matters, first of all. Learning his perspective and view on running the company might reduce the number of biases Gloria has. Furthermore, effective communication with Victor on business matters may help Gloria to negotiate the terms of agreement and, thus, reduce the percentage of Victor’s stake in the company. It should also be remembered that Serna is an experiences and successful business person, so his advice and guidance is only likely to help Calidad de Vida be more productive and successful. References Bowman, E., and G. Moscowitz. 2001. Real Options Analysis and Strategic Decision Making. Organization Science 12(6): 772–777. Chabaud, D., A. d'Hautefort, and S. Saussier. 2011. Incentives and control in company-owned vs. Franchised outlets: An empirical study at the chain level. http://emnet.univie.ac.at/uploads/media/Chabaud_Saussier_01.pdf Cyert, R., and J. March. 1963. A Behavioral Theory of the Firm. Prentice-Hall. Herzlinger, R., and B. Munoz-Seca. 2011. An Angel Investor with An Agenda. Harvard Business Review, March: 121-123. Kenkel, P. 2011. Effective Decision Making in the Board Room. Oklahoma Cooperative Extension Service. http://pods.dasnr.okstate.edu/docushare/dsweb/Get/Document-1784/F-979web.pdf Lowell, B. 2006. Multiple-Unit Franchising: the Key to Rapid System Growth. DLA Piper Rudnick Gray Cary US LLP. Papadakis, V. 1998. Strategic Investment Decision Processes and Organizational Performance: An Empirical Examination. British Journal of Management 9: 115–132. Pickwell, T. 2011. The Most Common Mist kes in Intern tion l Fr nchising. www.pickwelllaw.com/pdf/Intnl_Fran10-04.pdf Smith, K., M. Gannon, C. Grimm, and T. R. Mitchell. 1988. Decision-making Behavior in Smaller Entrepreneurial and Larger Professionally Managed Firms. Journal of Business Venturing 3: 223-232. Zouari, A. 2008. Costly External Financing, Investment Timing, and Investment Cash Flow Sensitivity: A Reformulation of the Problem. International Research Journal of Finance and Economics 19: 106-113. Read More